Why Nations Fail Illustrated

Lecture 7

Origins of Inclusive Institutions #3

Australia, France & Western Europe, and Japan

20 November, 2018

Masayuki Kudamatsu

Chapter 10, pp. 340-341, and pp. 362-363

Today's Road Map

Australia

Australia as Britain's penal colony

Destination for British convicts since January 1788

Image source: libguides.loretotoorak.vic.edu.au

Economic institutions in colonial Australia

Initial plan: Extractive institutions

Forced labor for convicts

Given only food in return for their labor

Guards & soldiers keep their produce

Economic institutions in colonial Australia (cont.)

Revised plan: Inclusive institutions

Convicts: allowed to sell their produce in their spare time

Propserity in colonial Australia

Some convicts became rich

e.g.

Henry Cable, an illiterate convict

By 1798, ran a hotel and a shop

By 1809, owned 9 farms of 470 acres, many shops & houses

Conflict over institutions in colonial Australia (cont.)

Ex-convicts soon demanded political participation as well

Elections to participate as equals to the elite

Parliaments in which they could hold office

Birth of inclusive political institutions

Ex-convicts: allowed to sit on juries

1831

1840

Transportation of convicts from Britain: stopped

Ex-convicts' demands: gradually accepted by the elite

Birth of inclusive political institutions (cont.)

Discovery of gold in 1851 (pp. 340-341)

Everyone is allowed to dig for gold

as long as paying an annual mining license fee

Image source: National Geographic

2nd path towards inclusive institutions

In both Australia and the United States:

Low

population

density

Lack of

precious

metals

Climate

unsuitable for

plantation

And not just for U.S. & Australia

Source: Figure II of Acemoglu, Johnson, & Robinson (2002)

The less densely populated in 1500, the richer today

Today's Road Map

French Revolution

Inclusive elements of political institutions in France

Assembly of Notables

Key aristocrats handpicked by the monarch

Give advice to the monarch (mild constraint on the king)

Image Source: Wikimedia Commons

Lead-up to French Revolution

Early 18th-century

Economic growth under Louis XIV

(supposedly) led to the emergence of merchants

Lead-up to French Revolution (cont.)

1787

To raise new taxes, Louis XVI convened Assembly of Notables

Image Source: Wikimedia Commons

They concluded to convene Estates-General

Lead-up to French Revolution (cont.)

1789

Estates-General, representing all subjects, gathered

Image Source: Wikimedia Commons

And turned into National Constituent Assembly

Today's Road Map

Spread of French Revolution to Western Europe

Extractive institutions in 18th-century Europe

Peasants owed various fees & taxes to lords

e.g.

230 different payments in Nassau-Usingen

for slaughtering an animal, selling/buying property, etc.

Extractive institutions in 18th-century Europe (cont.)

Severe restrictions on the lives of Jews

Could not farm or trade in weapons, spices, wine, or grain

Had to pay a special poll tax

e.g.

In Frankfurt, Jewish people:

Spread of French Revolution

Austria (cf. Lecture 4) and its allies:

Fearful of the spread of the revolution 

Invaded the Revolutionary France in 1792

The area ruled by Napoleon

Image source: Map 17 of Why Nations Fail

Inclusive institutions exported

Napoleon imposed Code Napoleon in every territory he controlled

Abolishing feudal land relations

Stamping out guilds in cities

Stripping the clergy of their privilege

Image source: mafr.fr

Evidence: Mayer Amschel Rothschild

Image Source: Wikimedia Commons

1744:

Born in Frankfurt's Jewish ghetto

Became a leading dealer in metals & antiques

but couldn't open a shop outside the ghetto

Evidence: 19 German polities in 19th-century

Source: Table 1 of Acemoglu, Cantoni, Johnson, and Robinson (2011)

Evidence: 19 German polities in 19th-century (cont.)

Source: Adopted from Figure 2b of Acemoglu, Cantoni, Johnson, and Robinson (2011)

Occupied by Napoleon

Others

Today's Road Map

Meiji-Japan

Satsuma domain (薩摩藩)

Allowed to trade with foreign countries via Ryukyu Islands

But political institutions weren't fully absolutist

Political institutions after Meiji Restoration

Taxation centralized

Constitutional monarchy with parliament from 1889

Why Japan, not China?

Today's Road Map

Term paper preparation #3

Inclusive

Extractive

Both

Plurality

and

Centralized

State

Either

Absolutist

or

Lack of

Centralization

How to measure political institutions?

Measurement of plurality

Executive constraints from Polity IV dataset

"Extent of institutional constraints on the decision-making powers of the chief executive" (Polity IV Project: Data User's Manual, p. 62)

Measurement of centralization

Tax revenue as % of GDP (cf. Lecture 3)

Plurality and Centralization go hand in hand

Source: Daron Acemoglu (2013) "State Building: A Political Economy Perspective" Slides for Nemmers Prize Lecture, p. 15

For your term paper

Compare your country's data values to the rest of the world 

Trace your country's data values over time

Weeks 8-10: Persistence of Extractive Institutions

Week Eight

Chapter 9

Colonization of

Southeast Asia by

Europeans in 17c

Slave trade in

sub-Saharan

Africa

British colonization

of South Africa

in 19c

NEXT WEEK

Your to-do list until next class

Read Chapter 9 & its summary on page 299

and post questions on Prulu

1

2

3

Visualize economic performance & entry regulation

of the country of your choice (if you haven't)

Collect the data on political institutions

in the country of your choice